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Proposed Hospital District is not the answer

Randy Peck

Ocean Shores resident

This issue is not about needing a hospital. That is a given. However, the question at hand is about how we do it.

The history of Grays Harbor private hospitals has been a long one. It is stated on the hopital website that in 1890 when St. Joseph’s Hospital and in 1897 when Aberdeen General Hospital came about we have had a hospital here. However, in 1945, just like now, Grays Harbor Community Hospital had to deal with a fatal financial crisis. However, it remained a private non-profit hospital. There were good times — such as in 1956 to 1959 when the current hospital facility was built. More growth happened in 1987. Then, St. Joseph’s Hospital failed in 1988 when it was purchased by GHCH. That was a sign that two hospitals could not exist based upon the economy here. Since 2006, more building and expansion happened. Yes, a new Emergency Department, Helipad, Labs, Physical Therapy, CT & X-ray Imaging, Nuclear Medicine & & Radiological Fluoroscopy, Wound Healing Center, Special Procedure Center (Endoscopy) and a new lobby were built based upon borrowed money. The nature of the bond market and the local economy did have some impact on the hospital. However, the underlying problem has been spending.

Spending has continued to outpace revenue, even with increasing revenue from the individual sources such as Medicare, Medicaid, Workmen’s Compensation, Contracted and Insurance since 1992. Only in 2013 did they start to flatten slightly.

What has happened over the last three years is a drop in total patient admissions and patient days. Between 2012 and 2013, the hospital lost $10 million in inpatient revenue and only gained $5 million in outpatient revenue. Thus, there was a net loss of $5 million in patient revenue. The Medicare and Medicaid patient admissions have dropped, but the “other” group has increased. However, in 2013 there were 2,163 Medicare, 1,023 Medicaid and 793 Other Patient Admissions. So, that tells you the real mix. Medicare is the leading group, not Medicaid. The “Other” group is not that much smaller than Medicaid patients.

Charity Care has not changed and has stayed around 1 percent of the Total Revenue since 2006. Remember, revenue has increased every year.

Their books show them to have over $17 million in cash with over $8 million in “other assets”. Those are just the “hard cash assets.” They still have the Net Property, Plant and Equipment valued at close to $47 million.

They also have debt. Now, that is the real question before the voters. A majority of that debt, $34 million is owed Key Bank in bonds. How they ended up with Key Bank as the bond holder is a story for another day. The hospital says they have $39 million of equity on a balance sheet that shows $101 million for Assets. The simple formula for accounting is Assets minus Liabilities is Equity which tells you they have $62 million in total debt. That is a 62/39 Debt to Equity Ratio. Not good!

The first point is that when the hospital announced they were going to go forward with the Hospital District idea the CEO, Tom Jensen, stated that they did not want a Hospital District. He and the Board wanted to keep the hospital as a private corporation just like it has been since the 1890s. It has always been “their hospital” not “our hospital.” In fact, in August 2012 the Board decided on affiliation with Multicare Health System rather than a merger.

Don’t be fooled by the term “Non-Profit.” All corporations are “non-profit” until they make a profit. How many of you have started a business and pumped every cent made back into the business until you made enough to feel it was large enough or fiscally stable enough to pay the “owners” a dividend? Well, that is basically the same thing here. Instead of paying out a dividend, Non-Profit Corporations pump the money into the business as retained earning. Last year their financials showed a $5.5 million dollar increase in retained earnings, which Tim Howden, CFO (Ret.) referred to as “profit.”

Non-Profits, as shown in the press over and over, serve the employees of the Non-Profit first by providing salaries and benefits. GHCH had done a great job at that. Mr. Jensen made $292,000 in 2013. The top 5 of the management team made $1,025,181 in 2013. That was $15,866 more than the previous year. Also, the new 2013 to 2016 Contracts for Employees gave everyone a raise, increased steps and reduced the number of days a part-time employee needed to work to get medical coverage. Is this the way you operate when you are failing?

The amount of Medicaid Reimbursement since 2006 was around 15 percent of the amount billed except in the year 2011 it jumped to 32 percent and in 2013 it increased to 19.34 percent. Some of that 2013 increase was because of negotiations with the Medicaid HMO organizations. You read in The Vidette that contracts were canceled in December. They have been negotiating with them to get more of the money they get from the state when they do use hospital services. However, the real purpose is to require these organizations to better manage their patients. That means that they force them to use the lower cost alternatives such as clinics instead of the Emergency Department for their care. Also, the hospital wants to limit the number of Medicaid HMOs to just two entities.

What about Obamacare? Only 638 people signed up in Grays Harbor County. Of those, 550 or so were signed up on “Expanded Medicaid.” This represents more people that have some coverage and are a source of revenue rather than a complete write-off when served. However, many people selected the higher deductible plans to save on the monthly insurance cost. So, those 88 people with “insurance” will still have some impact.

So, is this Public Hospital District the right path and what are others doing?

When it was announced that the hospital was going to pursue this path Becker Hospital Review writer, Bob Herman, wrote on April 7, 2014: The move bucks the general trend of hospitals moving away from public ownership structures. Since 2003, approximately 17 healthcare districts and public hospitals have declared Chapter 9 Bankruptcy.

So, why would we be moving against the industry trend and what is it?

The industry trend has been for larger Private Non-Profit Hospital Corporations to buy the smaller Hospitals. Non-Profit is important in light of RCW 70.45 which makes it very hard for a For-Profit Hospital to acquire a Non-Profit Hospital. That being said, what are the advantages? First, management is centralized and services multiple facilities. So, instead of paying $1 million for local management the cost is reduced by centralization. Second, you get the financial strength of the larger entity. Third, you get the personnel that can be distributed around the larger organization as needed. Fourth, you get the resources and ancillary services of the larger organization. Fifth, you can buy supplies and services in a greater volume and thus reduce your costs. And sixth, probably most important to the patient, you get a continuum of care from one end to the other of the larger entity.

The larger Non-Profit Hospital Corporation gets the revenue from all aspects of their treatment of you the patient, which is why larger Non-Profit Hospital Corporations are buying the smaller ones. It is an economy of scale.

So, what needs to happen for the larger Non-Profit Hospital Corporation to buy Grays Harbor Community Hospital?

Well, the trend has been for the larger cash rich hospital to walk the fiscally challenged smaller hospital through a “packaged” bankruptcy under Chapter 11. That means that they get to negotiate with the bond holders, creditors, and contract holders to get better terms or eliminate the debt. They use their existing cash to pay off the Creditors and Bond Holders. The Creditors and Bond Holders may take something rather than nothing. Also, contract holders are happy to have a new contract and if they are workers, a job in the future. Yes, it hurts, but it is how it is being done to save hospitals in communities.

The result is that the new hospital is debt free and able to continue operating. The result is a win win for the community.

If the ballot measure passes, there is a transition period where the assets of the hospital are transferred to the district. However, this is not just a wholesale handing over of the whole thing with all its “warts.” It is a negotiated transfer. The Hospital District first must sell bonds to finance the current hospital debt which may require paying off both the debt and the penalties. Some think that the 501(c)3 can hold onto the assets and debt and lease them to the district. Conversations with our representatives in Olympia say this solution does not meet the letter of the law. The law requires the hospital to be owned and operated by the Hospital District.

So, where does that leave you? It leaves you as the guarantor of those bonds. That means that if the hospital fails, you will pay for 25 or more years the debt with no benefit. Even Chapter 9 Bankruptcy, as mentioned above in the Becker Hospital Review statement by Bob Herman, is not a solution. Unlike Chapter 11 Bankruptcy, Chapter 9 does not let the public off the hook for the debt; another pitfall.

Also, the Private Non-Profit solution does not require a levy to support the bond payments that the Public Hospital District requires. But there is something the Hospital District can do that is similar to the Private Non-Profit acquisition. They can require the Private Non-Profit Hospital Corporation to file for Chapter 11 Bankruptcy to “clear the debt” from the books. However, that means that the Hospital District is going to need cash like the larger Private Non-Profit Hospital Corporation has. You and I both know that they don’t have that cash on hand. They only have your money and they will not see dime one until April 2016. So, once again the Public Hospital District has another pitfall.

You will also hear about “transparency” in the Hospital District, but you already have “transparency” in the hospital operations through the state Department of Health. Their financial records, treatment records, operations, payments of salaries to the top earners, etc. are reported annually. There is a whole host of information about all the Washington hospitals on their site.

You will hear about getting representation on the Hospital District. But what do you really get? Look at the slate of candidates. How many have a current stake in the hospital operation or directly benefit because of their relationship with it now? Do we really want the same people running the new Hospital District when they just ran the private entity into the ground? Who will they hire to manage it? Will they be the same people as now? How much can you really control your representatives once elected? We would only get, if allowed under state law, to speak at public meetings if the Hospital District is formed. However, anyone that has spoken at your local city, county and even state meetings knows that they can both prevent public comment and ignore what you say.

Even with a Hospital District formation the extra Federal Medicaid money is going to start declining in 2017. That is one year after they get your first dime. It continues to decline until 2020 because that is what the Federal Government law provides now. The State is currently scrambling to fund education because of the McCleary case. They have no plan to back fill the lost funds. The result is that we will be getting 125 percent of a declining pot of money; another pitfall.

How well do you see the Public Hospital District controlling costs? The current employee contracts are good until 2016. Do you really think a Public Hospital District will cut salaries? How well has your local city, county or state done at that?

The next liability is all current lawsuits and claims including the Defined Benefit Retirement Plan funding. Has that been funded completely? There is a Third Party Administrator that tells the hospital what needs to be contributed each year to fund the plan, but what is the amount required in future years as employees reach retirement age? No one has addressed that question. At least now they have a Contributory Retirement Plan that started in 2013. That plan at least limits future unknown liability.

So, when one looks at the pros and cons, the Private Non-Profit Hospital Corporation impacts you the voter the least. You have no new levy and you have no long term liability for the bonds, debt, pensions, or lawsuits. You have the same transparency as you would have with a Hospital District. You have the same ability to make public statements as you did before too.

What should the hospital do? They should go back to Olympia and get clean legislation that provides Medicaid money with a guaranteed payment above and beyond the decline in Federal payments to the state and ensure the payments are sufficient to cover the costs of providing the Medicaid services.

The current hospital should also find a buyer, go through Chapter 11 Bankruptcy and emerge as a functioning portion of a more robust Private Non-Profit Hospital Corporation.